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State of The Union

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In his State of the Union address on January 27, President Obama firmly announced his support for legislation to provide a tax credit for companies that hire additional employees.

The President’s proposal, which was announced following his address to Congress, would provide a $5,000 tax credit for every new employee hired in 2010.  This proposal would be retroactive to January 1.  In addition, companies that increase the number of hours worked would be reimbursed for Social Security tax payments made on real payroll increases.  The amount of tax credits received by any one company would be capped at $500,000 for the year.  The proposal also contains provisions designed to prevent companies from fraudulently claiming the tax credit.

Senators Hatch and Schumer on Meet the Press

Senators are currently preparing legislation that will contain a tax credit for new hires.  The details of this proposal are currently being negotiated among Senate Democrats.  But sources have indicated that the legislation is likely to provide: 

  • 20 percent tax credit for companies with fewer than 100 employees that hire a new employee; and
  • 15 percent tax credit for larger companies.

The total amount of tax credits any one company could receive would be capped at $350,000.  The Senate could consider this proposal as early as next week. 

In addition to the tax credit for new hires, Senators Charles Schumer (D-NY) and Orrin Hatch (R-UT) have proposed:

  • waiving the Social Security payroll tax for any employer that hires a new employee in 2010; and
  • offering an additional $1,000 tax credit in 2011 if the employee is kept on the payroll for 52 continuous weeks. 

This proposal would apply to private sector employees only, and any employer that had a lower total payroll in 2010 than in 2009 would have to forfeit the tax benefit.

The House-passed “Jobs for Main Street Act,” which is currently pending before the Senate, does not contain a tax credit for new hires.



 Next Issue

The next issue of HR Issues Update will be published on Friday, February 12, 2010.
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